Fed running out of policy bullets: Roubini
28 Aug 2010
New York University professor Nouriel Roubini, who forecast the US recession more than a year before it began, has said the Federal Reserve is running out of effective ways to stimulate the economy. In his estimate the odds of a double-dip recession have risen to more than 40 per cent.
Roubini, who gained renown for accurately calling the housing bubble, tweeted his latest gloomy view on Wednesday, telling his 20,000-plus followers that ''Q3 GDP growth very likely to be below 1%; and likely to be closer to 0% than to a pathetically lousy 1%. So double dip risk is now > 40%''
If GDP growth dips below zero for at least a quarter or two it would indicate a double-dip, which is a description for an economy that falls back into recession after a brief recovery from an initial downturn.
Subsequently, Roubini elaborated his views in an interview with CNBC Thursday. According to Roubini, several factors that acted as tailwinds providing the economy a lift in the first half of the year ''...are going to be essentially headwinds'' in the second half.
For example, temporary employment gains from the decennial US census will disappear, and there will no longer be ''...a number of tax policies that stole demand and growth from the future,'' such as tax credits for homebuyers.
''Based on the latest economic data, it looks like the third quarter is going to be well below 1 per cent, and certainly closer to zero than to 1 per cent, based on the current data,'' he told CNBC. ''And that's just the beginning of the second half of the year.''